C$ recovers modestly from six-week low versus greenback

Reuters Staff

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A Canadian dollar coin, commonly known as the "Loonie", is pictured in this illustration picture taken in Toronto January 23, 2015. REUTERS/Mark Blinch

TORONTO/OTTAWA (Reuters) - The Canadian dollar strengthened modestly against the greenback on Thursday, recovering from a nearly six-week low, though it was expected to remain on the ropes in the longer term as monetary policy in Canada and the United States diverge.

The small gain came after two sessions of losses, while oil prices ended the day mixed as rising U.S. production was tempered by geopolitical uncertainty. [O/R]

U.S. crude oil futures CLc1 ended down 17 cents at $50.27 a barrel, though Brent LCOc1 was up 6 cents to $52.99 a barrel.

A weak U.S. dollar also helped the loonie, but the greenback likely still has some upward momentum to it, given the strengthening U.S. economy and anticipated interest rate hikes from the Federal Reserve, said Rahim Madhavji, president at KnightsbridgeFX.com.

With the Bank of Canada staying on the sidelines and oil prices relatively weak, the Canadian dollar could grind lower to C$1.36, said Madhavji.

“The saving hope for the loonie is either oil or the Bank of Canada and neither of them seem to be enforcing themselves at this time.”

The Canadian dollar CAD=D4 finished at C$1.3472 to the greenback, or 74.31 U.S. cents, slightly stronger than Wednesday’s close of C$1.3480, or 74.18 U.S. cents.

It traded in a tight range between C$1.3500 and C$1.3457, after changing hands in the C$1.33 range earlier in the week.

Investors were turning their attention to inflation data due at 8:30 a.m. ET (1230 GMT) on Friday for further signs that the country’s economy is picking up. Economists polled by Reuters expect the annual inflation rate cooled to 1.8 percent in March. ECONCA

Canadian government bond prices were lower across the maturity curve, with the two-year CA2YT=RR price down 2 Canadian cents to yield 0.734 percent and the benchmark 10-year CA10YT=RR off 13 Canadian cents to yield 1.481 percent.

The Canada-U.S. two-year bond spread was slightly narrower at -45.9 basis points, while the 10-year spread was also tighter at -75.5 basis points.

Reporting by Alastair Sharp in Toronto and Leah Schnurr in Ottawa; Editing by Chizu Nomiyama